Chapter 14 Dependent Demand Best Practice in Inventory Management Chapter 14 Dependent Demand ERP Material Planning Dr Tony Wild

Figure 12.1 Contrasting Independent & Dependent Demand Stock level system Forecast Keeps stock All lines separate Reactive Good customer service High stock DEPENDENT MRP system Calculated Buys when required Lines co-ordinated Proactive Very good customer service Low stock Best Practice in Inventory Management Dr Tony Wild Best Practice in Inventory Management Dr Tony Wild

Supply Scheduling Stock Weeks or days Average Stock Delivery Quantity Average Stock Weeks or days Av. stock = half delivery quantity + safety stock Best Practice in Inventory Management Dr Tony Wild

Figure 14.2 Inventory & MRP Inventory Time Independent demand Delivery Quantity Stock + Safety Stock Dependent demand Stock supplied when required and used up Average independent demand inventory Inventory Average independent demand inventory Time Best Practice in Inventory Management Dr Tony Wild

Figure 14.3 Process Sequence Time Order Receive Issue Supply lead time Process Receive Issue Receive Issue Transfer Process 1 Best Practice in Inventory Management Dr Tony Wild

Figure 14.4 Contrasting Dependent & Independent Demand Approaches Inventory-level system Material requirements planning Treats each part individually Deals with structure Depends on demand history Looks at future plans Assumes average Handles erratic demands Aims to keep stock levels up Holds stock only to cover demand Priorities inflexible Sensitive to priority changes Mainly runs itself Needs managing Best Practice in Inventory Management Dr Tony Wild

Figure 14.5. MRPII Structure Production Plans Supply Orders & Schedules Material Requirements Plan Sales Orders Master Schedule Demand Forecasts Long Term Plan (S&OP) Product Inventory Bill of Materials Dependent Inventory (WIP, RM) Lead Times & Routings Batch Rules Best Practice in Inventory Management Dr Tony Wild

Figure 14.6 Basic MRP Calculation Existing Opening Inventory on hand 40 Delivery Receipts +10 Issues (Demand) -30 Closing inventory on hand 20 MRP Calculation for each period PLUS MINUS EQUALS Best Practice in Inventory Management Dr Tony Wild

Figure 14.7 Bills Of Materials Product Assembly Components Subassembly Product Assembly Components Figure 14.7 Bills Of Materials Best Practice in Inventory Management Dr Tony Wild

Figure 14.8 Simple Master Schedule Layout Item Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Product 1 100 50 180 60 130 90 Product 2 30 45 35 Product 3 300 200 Product 4   25 Product 5 10 - Product 6 Figure 14.8 Simple Master Schedule Layout Best Practice in Inventory Management Dr Tony Wild

Figure 14.9 Master Schedule Supply Planning Week Forecast Requirement Scheduled receipts Projected Stock on Hand Planned order receipts Projected available Planned order release (b) (a) Current   50 1 300 500 250 2 400 350 3 200 150 4 450 5 6 -250 7 100 -350 8 -650 9 1050 10 1250 Current situation Planned Situation Assuming (a) a fixed batch size of 500 (b) Supply lead time - 4 weeks No Safety Stock Best Practice in Inventory Management Dr Tony Wild

Figure 14.10 Control of supply and demand PLANNING SUPPLY Customer Schedules Forecasts Demand Avoid shortages Work already started Creates new planned supply Projected available Purpose: Sets up manufacturing and purchase orders THEN Customer orders Sales order promising Used planned supply Unallocated supply Available to promise Purpose: Apply customer orders to the existing plan ALLOCATION TO CUSTOMERS Best Practice in Inventory Management Dr Tony Wild

Figure 14.11 Available to Promise Delivery promising Customer orders Scheduled receipts Stock on hand Planned order receipts Available Available to promise Current   50 10 1 260 500 290 2 660 130 3 120 4 320 190 70 5 6 60 510 110 7 400 -390 8 -400 600 9 1100 Scheduled and Planned order receipts from figure 14.9 Best Practice in Inventory Management Dr Tony Wild